A new Korean supergrouping?

The Korean telecoms world is on the verge of a revolution thanks to the sale of Powercomm.

LG Group and Japan's Softbank may be on the verge of a profound restructuring of the Korean telecoms sector.

In part, this is thanks to some very messy shareholdings.

LG owns 30% of Dacom, a competitor to KT in the long distance and international field. Meanwhile, Softbank has long been a major investor in broadband operator, Korea Thrunet - owning 20% - and more recently it took an undisclosed stake in Dacom.

Now Dacom and Thrunet have formed a consortium that will buy 45% of Powercomm from Kepco for W819 billion ($678 million). This will mean that Dacom can now make use of Powercomm's national fiber optic network to offer end-to-end calls; allowing it to better compete with KT. Previously Dacom had to channel calls from its 'last mile' via Powercomm's national network (as a customer). Large business users thought this was less reliable than KT's dedicated network. By putting Dacom and Powercomm together, that competitive issue will no longer prove a hurdle.

The result will be the emergence of a new supergrouping of Dacom, Powercomm and Thrunet. It will lead to a more sustainable corporate entity capable of competing with KT in fixed line and broadband services.

Left out in the cold by the new deal - it would seem - is Hanaro, which had also bid for Powercomm only to see the deal unravel thanks to contractual disputes with Kepco.

As in a military campaign, control of Powercomm was seen as vital bridgehead by both Hanaro and the Dacom-Thrunet consortium.

Hanaro is also 6% owned by LG Electronics, but traditionally its management has operated quite independently of LG. But it requires the use of Powercomm's network too. Like it or not, Hanaro may be forced to come to terms with the new grouping and may face a future merger. (Having amassed W1 trillion of debt it may not be able to afford to go it alone.)

This would be pleasing to LG, which could then consolidate all its holdings into a single strong player.

However, the Dacom-Powercomm deal has not yet closed, and given the recent failure of the Hanaro-Powercomm deal, it may be premature to draw such grand conclusions.

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